SYNA Up 14%: Bulls Like Correlation to Apple ‘in-cell’ Interest

By Tiernan Ray

Shares of touch sensor device maker Synaptics (SYNA) are up $3.46, or almost 14%, at $28.90, after the company last night reportedfiscal Q4 revenue and EPS that topped analysts’ expectations but forecast the current quarter’s revenue below consensus because of a “soft” PC market.

Revenue in the three months ended in June rose to $137.6 million, yielding EPS of 54 cents. Analysts had been modeling $136 million and 51 cents.

For the current quarter, the company sees revenue in a range of $120 million to $128 million, below the consensus $141 million estimate.

The divide today between the bulls and bears is whether to focus on new product or whether to heed the general weakness in the PC component market.

Rajvindra Gill with Needham & Co. today reiterates a Buy rating on Synaptics shares and a $31 price target, pointing out that 35% of the company’s market cap is in cash, and that Synaptics’s “in-cell” touch technology could get a lift from Apple‘s (AAPL) interest in that technology.

Despite the near-term hiccups, we remain bullish on SYNA given its substantial lead with In-Cell, which we think could become the predominant touch technology in the future. Moreover, we believe SYNA has the right strategy in an increasingly commoditized and price competitive touch market place, with its integrated touch controller and driver IC SoC. The analyst day on 8/7 should provide a catalyst for the shares as SYNA will most likely delve into details with its In-Cell offering: well timed ahead of Apple’s iPhone 5 launch, which is speculated to have an In-Cell design (internal solution, rather than SYNA).

Similarly, John Vinh of Pacific-Crest reiterates an Outperform rating on Synaptics stock, writing that the only thing that matters is that Synaptics is shipping its “in-cell” touch technology, the same kind of technology that it appears Apple is using (in partnership with Sharp) for the next iPhone, the “iPhone 5“:

Synaptics LCD partners have already shipped millions of in-cell displays, which should alleviate concerns that low yields could slow the uptake of in-cell. Yesterday, Sharp also announced it has begun shipping (in-cell) to Apple; we believe the launch of the iPhone 5 using in-cell is a key catalyst and validation of Synaptics leadership in touch. We believe the company stands to gain meaningful share as a result.

By contrast, National Securities’s Darice Liu today reiterates a Neutral rating on Synaptics, arguing that broad economic weakness must be taken into account:

Synaptics seems to have regained some of its footing and competitive gusto with design wins in the tablet, ultrabook and mobile phone markets (though some wins are for lower ASP touch sensors). Additionally, the company is positioning itself at the forefront of the next two major touch waves: in-cell and TDDI (Touch Display Driver Integration). At the same time, macro headwinds are weighing on consumer spending and are expected to hamper near-term financials. As a result, we are maintaining our NEUTRAL rating.

Note: In an email this afternoon, Vinh clarified that he is not claiming that Synaptics’s in-cell technology is in the iPhone, only that Apple seems to have a clear interest in the technology, and that Synaptics is “the only merchant provider on the market.”

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.